Wednesday, October 15, 2008

National policy "akin to communism"

He was commenting on the absurd policy announcement by John Key that National would direct the New Zealand Superannuation Fund – the only superannuation fund in the country that pays out the same regardless of how much or little you contribute to it – to invest 40% of its funds in New Zealand companies.

Key’s announcement is completely banal. It risks not only reducing the returns for the fund, but also concentrating too much risk in New Zealand investments. Furthermore, he talks about it investing in “infrastructure bonds”, which means simply, funding government borrowing. You don’t need infrastructure bonds if you let the private sector build, operate and charge users for infrastructure – such as how the country’s two mobile phone networks have been financed and built, and how the internet has been developed, how Auckland and Wellington airports have been developed. No – John Key is in Think Big land.

Dr Cullen is right – regardless of the merit of the NZ Superannuation Fund – not letting the fund managers invest where they see fit will devalue the fund. Furthermore, to suggest that it should finance “Think Big” style central planning government infrastructure projects on telecommunications, water, roads or whatever, is further reducing the likely return (or increasing government borrowing costs, you can’t have both), as well as supplanting private sector investment (increasingly used overseas) with compulsory taxpayer funding.

Of course, renationalising an airline and a railway are also “forms of communism”, so Dr Cullen is very experienced in what he is talking about.

The right answer is to do what, ironically, Winston Peters once advocated. Divide the NZ Superannuation Fund into individual accounts, and hand them to taxpayers to keep, invest in or sell. The consequence is that you are responsible for all or part of your retirement income (with some pro rata adjustment for those currently retired or relatively close to retirement).

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About Me

Life, liberty and the pursuit of happiness. Politics, philosophy and economics from a pro-capitalist, libertarian, objectivist perspective. Born in New Zealand, live in the UK, career has been in transport, telecommunications and infrastructure policy.